Evolution of the Direct Market Part III

While the distribution system Phil Seuling devised to deliver new comics
directly to comics shops during the early 1970's was both innovative and
highly efficient, it had some very significant flaws. The first was that
Phil demanded up front payment with any order submitted. This was a
dreadful hardship on many stores, as they were typically
undercapitalized, and could not well stand the burden of having their
new comics dollars tied up for a minimum of two months ahead of
shipment. Making this matter even worse, many comics shipped late during
the 1970's. I rememeber distinctly paying for one Uncanny X-Men annual
in February (shipping in May) only to have it ship in November, six
months late. That was a lot of money I could have used in my business
that was tied up due to Phil's policies.

While late shipping books were a huge drain on cash flow, books that
were canceled were an absolute nightmare. While Seagate Distributing did
a pretty good job of shipping orders for items that were printed on
time, they had no effective methodology for crediting customers for
items that were solicited, but never shipped. As a result, retailers
were forced to fend for themselves in trying to figure out what they
were owed. One large California dealer, who was good friends with Phil,
solved this problem by taking a vacation each year in New York. He
stayed at Phil's house in the Seagate ( a gated community at the tip of
Coney Island), and spent his days in the Brooklyn warehouse/offices
auditing his account. He then spent the missing credits he discovered
during the audit on material in the warehouse basement, frequently on
choice items that Phil didn't even know he owned.

If it seems odd that Phil had great material that he'd lost, consider
the fact that his up front payment requirement was an absolute cash flow
dream. He was getting at least 60 day billing from his publishers
(probably 90 days...), while his accounts were forced to pay up front by
a minimum of 60 days. As a result, Phil had between 120 days-180 days of
"float" on every dollar sent to him for books. This was in addition to
the fact that his operating margin on his wholesale sales was a nice fat
33%. While those two factors were great, rapid growth in the Direct
Market was the real key to Seagate's success. As I explained in last
week's column, Phil's system allowed most comics shops a one-week
advantage in delivery over newsstands service by traditional wholesalers
(ID's). This advantage allowed most comics shops to quickly attract in
comics readers and collectors from a wide area. This success on the part
of his retailers translated into progressively larger sales for Seagate,
as well as a steady increase in up front payments. Phil utilized the
cash he had available from this massive "float" to purchase huge
quantites of books, magazines, and posters, which he then wholesaled
back to the very accounts who had provided him the cash. Is it any
wonder that Phil had no idea what lurked in the unmarked cases in
Seagate's warehouse basement? In reality, he didn't need to know, as his
cash flow was growing so quickly that it more than compensated for the
inefficiencies of his warehouse staff.

Another problem with Phil's system was that he made no attempt to
provide advance information on upcoming titles. Today's retailers and
fans are incredibly spoiled with knowledge about upcoming projects.
Between Diamond Previews, fanzines, and the Internet most comics
projects are well analyzed before they are ever solicited. During the
mid-1970's all we got was a one-page order form from Seagate that listed
titles, issue numbers, cover prices, and projected shipping dates. That
was it. No plot information, no creators, zilch. We had to order totally
on the basis of past sales on given titles (or related titles...), which
I've always considered akin to driving a car by looking our the rear
window. Utilizing that technique you have a reasonably good idea of
where you've been, but only a very vague concept of where you're going.
When a title turned out to be bad, retailers took it on the chin. But
Phil still made his profit, and he still had our cash to play with for
many months. This was a situation that was ripe for a revolution, and in
the end, Phil unwittingly set the stage for his own downfall.